Arki Busson seeks new partners

Busson's early capacity for forming relationships has stood him in good stead. He has made his name not through wagering on stocks or bonds, but by investing in people. The French-Hungarian financier identified and raised money for early US hedge fund managers Paul Tudor Jones, Julian Robertson and Louis Bacon, a trio that spawned a generation of imitators, and is credited with taking them to Europe.

Busson was a conduit between old-world European wealth and the new world of hedge funds, tapping into his aristocratic connections and the network he built up at Swiss boarding school Le Rosey.

Singling out talented people will be key to the next stage of EIM – the $8bn fund of funds firms that Busson founded in 1992 – as he embraces the challenge of rebuilding a business that saw its assets almost halve from a peak of $14bn in summer 2008.

The firm has hired Jan Frogg, former head of alternatives at Swiss rival Union Bancaire Privée, as president of its newly established executive committee, which EIM created to further institutionalise the business. It is a collegial approach, where all lines of the business now formally report to one body.
EIM's industry is at an inflection point. Assets in funds of funds remain 25% off their pre-crisis highs, although net inflows resumed last quarter, according to information provider Hedge Fund Research. The number of funds of funds is 15% off its peak.

Busson believes there's more consolidation to come – and he wants to be part of it. He said: "I would like to become one of the consolidators. The barriers to entry have risen so dramatically that the assets under management needed to survive or thrive have gone up. We are currently looking at several acquisitions."
Deal activity in the hedge fund industry is often talked about, but successful deals are rare, due to the personalities involved and difficulties in valuing businesses. This is even more true with fund of funds consolidation, where its detractors argue that a manager could hire the people and recreate the portfolios, without buying the legacy issues.

Busson is not deterred. He said: "Every single firm we are looking at has human capital. There are some ideas that you wouldn't get just by hiring the individual."
EIM wants to buy two funds of funds. It plans to integrate one with its own business and leave the other to function as a separate entity.

It is with this in mind that Busson has decided to open up the partnership structure of EIM, a privately owned company in which he has invested a "substantial" proportion of his net worth. The idea is to be able to reward its key individuals – many of whom have worked with Busson for years – with a stake in the company, and offer an attractive proposition for those it might want to hire.

Friends and rivals attest to Busson's charm. Stanley Fink, former chairman of Busson's charity Absolute Return for Kids, who has been awarded a life peerage, said: "Arki is the most warm, charming and generous person you could possibly meet. When you're talking to him he has the ability to make you feel like you're the most important person in the world, which is a rare gift."

Despite Busson's easy charm it has not all been smiles at EIM. A veteran of the hedge fund industry, who has known Busson for years, said: "At times it appeared that Arki's close relationships could override the firm's systems and controls. He built the firm on his own image and reputation and this has been good and bad for the business."

The year 2008 was an annus horribilis for the fund of funds industry, when the average fund of funds lost 21.37%, according to Hedge Fund Research. EIM had its first losing year: its portfolios fell 8%-19%.
It was also a year when many funds of funds managers failed to deliver on one of the industry's main promises: that of spotting frauds and likely blow-ups.

EIM was found to have invested $230m in Bernard Madoff's Ponzi scheme. On a smaller scale, it had earlier had positions in Amaranth Advisors, a US hedge fund firm that blew up in 2006 when its bets on natural gas turned bad; and it also invested in the Bear Stearns hedge funds that collapsed in 2007.
Individuals joining EIM – initially European Investment Management and later abbreviated – will find a very different outfit to the one that existed two years ago. It is, said Busson: "a little bit of a new EIM." It is smaller – headcount has fallen from 240 to 145, although the firm is hiring again. Moreover, some fundamental changes have been made to the operational side of the business.

EIM has hired John Ward from Nomura as head of operational due diligence. Qualitative judgments are now accompanied by hard-and-fast rules. The firm does not invest in managers without an independent administrator, an independent auditor or an independent custodian. It fired a handful of managers who would not comply.

EIM now uses RiskMetrics – an independent risk platform that aggregates risk at a position level – for all of its flagship funds. Plans are under way to move many of its allocations into managed accounts, a structure that lets investors keep control of their assets and gives them transparency on their portfolios. On completing the initiative, it will access 35%-40% of its managers through managed accounts.

"I don't think there's any regulator, any government who will stop fraud altogether," said Busson, who said he thinks about fraud "the whole time".
But, in addressing the issues raised by Madoff, he said: "We've done everything we could have done now. We've done a huge amount of work to fulfil our fiduciary obligation."

This year EIM's portfolios are up 2.5%-4.5%; the average fund of hedge funds is up 3.59% to October, according to Hedge Fund Research. The firm is poised to take advantage of the convergence between long-only and alternatives strategies, and Busson believes the hedge fund industry's long-term performance and volatility figures will attract more institutional investors.

He is excited about "a new generation of managers that have gone through 2008 and have been versed in the dramatic changes that we've had".
Busson, who says it is "the hard work, the discipline and the homework" that singles out managers, estimates that he spends 80% of his time on EIM, of which about a third is visiting new managers.
While the firm is modernising, its fundamental business model remains the same, that of tailor-making portfolios of hedge funds. It is one on which the wider fund of funds industry has pinned its hopes for regeneration.
- EIM founder doubles as Ark angel

While Arki Busson spends about 80% of his time on EIM, in many ways he is better known for his philanthropic work through Absolute Return for Kids – or Ark. The charity, which Busson helped found in 2002, focuses on international projects in the areas of health, education and child protection.
Any similarities with the name of the charity's energetic founder are purely coincidental. The name was the result of a competition among the charity's board members, which was won by Kevin Gundle, founder of fund of funds firm Aurum Funds. Since it launched, the charity has raised £156m for children's projects around the world.

Stanley Fink, who stepped down as chairman of Ark last month and who has just been awarded a life peerage, estimates that Busson personally sells a third of the tables for the charity's annual fundraising dinner, which has become a must-go event in the hedge fund industry.

This year's event, held in the old Eurostar terminal in Waterloo station, raised £14.1m and Queen Rania of Jordan addressed more than 800 guests who attended the event.
Fink said: "The amount of time and money Arki gives to charity and the way he's prepared to open up his address book for Ark is an inspiration."
The passion that Busson and others feel for the charity's efforts can lead to heated exchanges in the boardroom. One observer said watching Busson and Ian Wace, co-founder of hedge fund manager Marshall Wace and Ark's chairman, was "like watching a Punch and Judy show".

Busson said he is staggered by the generosity he has seen among the financial community, which he hopes one day will help dispel the notion that hedge fund managers are selfish, or even wicked.
Busson, who also helped set up the Theodora charity which provides clowns for children's wards in hospitals, believes that the government should nurture and encourage public-private partnerships and increase and clarify tax incentives for individual donors.